MKT 3035International Marketing of Textiles & Apparels

Chapter 1International Market Entry

These slides are not necessarily be an original work rather these are a compilation of different sources- Sanuwar (Mr.)

Decide on

Export

Implement

Commitment to Export

Analyze

Internal Factors

-Product

-Resources

External Factors

-Market Environment

-Competitive Profile

International Market InvolvementMarket Identification & targeting

Entry mode selectionMarketing Mix

*Product *Price *Distribution *Promotion

Organize DepartmentSubsidiaryJt. VentureExport House

Allocate Resources*Product*Arrange Resources

ReviewModify

Set new target

Set Targets

Process of International Marketing

WHY COMPANIES GO INTERNATIONAL?

Two Factors: Pull factors

: Push Factors

Pull factors: Proactive reasons – forces of attraction – pulls the business to foreign markets – profit, growth etc.

Push factors: Reactive reasons – compulsion of domestic market prompts companies to internationalize – saturation etc.

Profit Motive:

•International business – profitable than domestic market – investment in low cost locations.

Why Should a Firm Enter International

Markets?

GrowthProfitability

Economies of scale

Spreading Risk

Access to Imported inputs

Uniqueness of Product or

services

Marketing Opportunities

Due to lifeCycle

SpreadingR & D

Cost

Competition inDomestic

market

Govt. Policies &Regulations

Spin - off benefits

Strategic Vision

Wholly Owned Subsidiary

Contractual Entry Investment Entry

Joint Venture

Marketing Entry

Export Entry

Indirect Direct

Export Houses Agents

Commission Agent Exporters Agent Abroad

-Assembly

-Contract Manufacturing

-Licensing

-Franchising

-Co-production agreement

-Management contract

Major Minor 50:50

Acquisition Establishing own unit

Market Entry Methods

The Concept of International Market Entry

• An institutional mechanism by which a firm makes its products and services available to consumers in overseas markets

• Franklin Roots defines the market entry strategy as a comprehensive plan which sets forth the objectives, goals, resources and policies that guide a company’s international business operations for achieving sustainable growth in world markets.

• Once a firm has decided to establish itself in global market—it becomes necessary that the Company studies and analyzes the various options available to enter the international markets and select the most suitable one.

• This decision is to be taken with utmost care—Not only is the financial resources in stake but the extent to which the company‘s marketing strategy can be employed in the new market also depends on this decision.

• Mode of entry varies from low -risk ,low-control modes with minimum resource commitment eg. indirect exports to high-risk, high control modes with a higher level of commitment by establishing its own manufacturing facilities in foreign markets (subsidiaries).

Production in Home Country Production in Foreign Country

Exports Providing Offshore Services

Contractual Mode Investment Mode

Indirect DirectOverseas

Assembly or Mixing

Joint Venture Wholly Owned Foreign

Subsidiaries

International Licensing

International Franchising

Turnkey Projects

Management Contract

International Strategic Alliance

Contract Manufacturing

Distribution Access

Technology Alliance

Production Alliance

B & T BOT BOO

Alternative Entry Modes

Production in Home Country

Export Entry

•A firm has two basic options for carrying out export operation.

--Market contacted through a domestically located intermediary—an approach called Indirect Exporting

--Market can be reached through an intermediary located in foreign market--an approach termed as –Direct Exporting

Direct ExportsA firm’s product is directly sold to importers-Sole distributor

Foreign country based intermediaries--Agents

Company owned Sales Offices

Indirect Export--When firms do not have much exposure and has limited resources –Indirect Exports

•Indirect exports occur

-Selling to a domestic broker/ foreign buying agent in home country

-Exporting through merchant intermediary-export house

Contractual EntryProduction in foreign country

Licensing• A company assigns the right to a patent (which protects a product, technology

or process) or a trademark( which protects a product name) to another company for a royalty

• Licenser gives technology, manufacturing right, brand and also marketing right (unlike contract Manufacturing)

• Licensee gains marketing right- Exclusive basis or Unrestricted basis

• Variety of time period 5 to 15 years

• Licensee makes all capital investments

• Licensing agreements subject to negotiation –vary from Co. to Co. and

industries to industries

International Franchising

• A special form of licensing in which a home company (Franchiser) makes a total programme of operation available to an overseas company (Franchisee)

• It includes the brand name, logo, products and method of operation

• Mc. Donald’s, KFC, Burger King, Holiday INN, Hertz, Carrefour, Benetton, Coca Cola (trade mark, recipe, and advertising)-independent bottlers around the world

• It is a transfer of the entire system from one country to another

Licensing Franchising

Royalty Management Fees

Products are major source of concern

Covers all aspects of business including goodwill, trade marks, IPR etc

15-20 years 5/10 Years – renewable

Licensing tends to be self selecting. They are often established businesses and can demonstrate that they are in a strong position to operate the license in question.

A licensee can often pass a license to an associate with little or no reference back to the original licensor.

The franchisee is selected by the franchiser. Even replacement is controlled by franchiser.

Difference between Licensing and Franchising

Licensing Franchising

Concerned with specific existing products and technologies

Franchisor passes to the franchisee the benefits of on-going research programs

There is no goodwill attached to the licensing as it is totally retained by licensor

Although franchisor does retain the goodwill, the franchisee picks up an element of localized goodwill

Licensee enjoys substantial measure of fee negotiation

Standard fee structure. Any variation will cause confusion

Lesser control Exerts higher control

Overseas Turnkey Projects• Companies utilize technical expertise to enter international markets

• Types of Turnkey Projects

- Build and Transfer (Conceptualizes, designs, builds, testing and transfer the project to the owner

- Build/Operate and transfer (BOT) (Build the project and manage for the contracted period before transferring to the foreign owner)

- Build, operate, own (BOO) (Firm buys the project, once it has been built)

International Management Contracts•Company provides its technical and managerial expertise for a specific duration to an overseas firm.

• Low risk, low cost mode of entry.

• Earn foreign exchange and optimally utilize its skilled manpower

Strategic Alliance• Refers to the relationship between two or more firms that cooperate with

each other to achieve common goals but do not form a separate company.• Firms focus on their core competencies• Difference between strategic alliance and joint venture

- In Joint Venture two partners contribute a fixed amount of resources and the venture develops on its own Joint Venture

Parent Company X

Parent Company Y

Company Z (Joint Venture)

-In strategic alliance each partner brings a particular skill or resource – usually they are complementary and by joining forces each expects to profit from the other’s experience-No equity participation

Company X

Strategic AllianceContractual

AgreementCompany Y

Contract Manufacturing• An international firm arranges to have its products manufactured by an

offshore local company on contractual basis• Local manufacturers responsibility is only production• Marketing responsibility is on Parent company• No legal bindings – change contracted manufacturers to improve quality and

cost effectiveness• A number of global companies outsource manufacturing activities to low cost

locations.• Globalization of business technologies and increasing pressure on

international firms to be globally competitive in costs, product offering, speed to bring new products – driving force of international contract manufacturing

• Economic development of a number of countries depend on contract manufacturing like China, Korea, Mexico, Thailand, Taiwan, Now Indonesia, Vietnam and India

• Nike shoe – entirely manufactures through contractual basis

Local ManufacturingA common and widely practiced form of entry is local production of company’s products.

Types:• Overseas Assembling

• Joint Venture

• Wholly Owned Subsidiaries

Reasons for Local Production

•Local cost, market size, tariffs, laws and political consideration may affect a choice to manufacture locally

• Sometimes cost cutting rather than market entry – International firms establish plants in Taiwan, Malaysia, Vietnam, China – little intention to enter the market – export to third country

Wholly- owned subsidiary

•Tata Tea entered into JV with Tetley group, UK in 1994,acquired Tetley in 2000 •Asian paints has 27 manufacturing plants in 24 countries•Aditya Birla Group has wholly owned manufacturing base in south east Asia

Establishing local operation to gain new businessAn aggressive strategy – a strong commitment in international operation – often the only way to convince clients to switch suppliers

Important strategy in industrial market – service and reliability of supply main factors in the choice of suppliers

Establishing Foreign production to defend existing business Changing economic or political factors necessitate such a move

E.g. Japanese car manufacturers, that had been subject to an import limitations of assembled cars, from USA imported from Japan, began to build factories in USA to protect their market.

In 1982 Honda became the first Japanese manufacturer to set up production in USA

Assembly• A firm locates a portion of the manufacturing process in the foreign

country

• Assembling consist of the last stage of the manufacturing and depends on a ready supply of components or manufactured parts to be shipped from another country

• Involves heavy use of labor rather than expensive investment of capital outlets

• In order to save in shipping costs and high import tariffs and counter non tariff barriers and take advantage of cheap labour cos exports components in CKD condition and assembles them overseas e.g Mahindra &Mahindra, has entered Kenya by assembling operation

• Tata motors assembling operations with Nita Company Ltd in Bangladesh for commercial vehicles

• Japanese automobile cos have entered European market by assembling to overcome import barriers

• Sometimes Cos may use some of the local resources

Joint VentureUnder a joint venture arrangement a foreign company invites an outside partner to share stock ownership in the new unit –minority or majority or 50:50share

Reasons for JV• By bringing in new partner , company share the risk for a new venture

• JV partner may have important skills or contacts of value to the firm

• Local firm has good contacts with the government and represents local business interests

• Provide greater control over production and marketing functions

During 1960-70 Japanese market was viewed as a difficult environment—govt regulations—JV

Mc Donald’s entered Japan in 1971 through JV with Fujita &Co

Mc Donald’s in India through JV

Examples:

Wholly -owned foreign subsidiariesIn order to have complete control and ownership of international operations, a firm opts for foreign direct investment to own foreign operations.

Benefits Develops a foreign market with growth potential by way of product

differentiation and competitive response Helps in overcoming import barriers-high tariffs, quota Gets benefits of incentives provided by host countries Helps a firm to spread risks over various markets Take advantage of lower cost of production in host countries—raw

material. labor Avoids conflicts with overseas partners

Limitations: Need substantial financial and other operational resources Need substantial international exposure before establishing WOS.

Ways of establishing WOS Acquisition Greenfield operation

Acquisition• A company can acquire a foreign company and all its resources in a foreign

market• Acquisition provides speedy access to the resources of a foreign company

such as skilled man power , the company’s product and brand and its distribution channels

Green field operation• The firm creates the production and marketing facilities on its own from

scratch• Green field operations preferred under following situations

Smaller firms with limited resources Have the option of selecting own location on the basis of their own screening

criteria.

Chapter 2:Globalized Apparel Supply Chain Management

Supply Chain Management

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Tier 1 Suppliers

Tier 1 Customer

Tier 2 Customers

FocalFirm

Tier 3 to Initial suppliers

Tier 2Suppliers

Tier 3Customers

• Boxes (Material Flow)

• Bytes (Information Flow)&

• Bucks (Financial Flow)

3B’s of Supply Chain Network

Approaches of Supply Chain

VOLUME

AGILE

LEAN

LEAGILE

PREDICTABLE UNPREDICTABLE

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LEAGILEPOSTPONEMENT

AGILEQUICK

RESPONSE

LEAN CONTINIOUS

REPLENISHMENT

LEANPLAN &

EXECUTE

Hybrid Approach (LEAGILE) Of SC

CustomerSupplier

Buy-to-order

Make-to-order

Assemble-to-order

Make-to-stock

Ship-to-stock

Lean Supply Chain Agile Supply Chain

Perceived Customer Value

Value

QUALITY SERVICE

COST LEAD TIME

X

X

•Meeting Customer requirement•Elimination of wastage•Continuous improvement

•Customer Support• Product Service• Flexibility to meet customer demand & market change

•Design & Engineering• Conversion & Distribution• Inventory•Materials

• Time to Market•Order entry to Del.

• Response to market forces• Lead time

THE VALUE CHAIN

•Insource / outsource?•Manage variety,quality& costs

•Brand Development & Management•Market development

•Distributor liaison•Product & service liability

•Product & service specification•Infrastucture supoort

Value Delivery

LOGISTICSSUPPLY CAHIN

STRATEGY SUPPLY CHAIN

OPERATIONS

SUPPLY CHAIN

PLANNING

SC ENTERPRISE

APPLICATION

PRODUCT LIFECYCLE MGT.

PROCUREMENT

SUPPLY CHAIN MANAGEMENTLOGISTICS

LOGISTICS- THE KEY SUCCESS FACTOR

•WMS (Warehouse management system)

•TMS (Transportation management systems)

•RFID (Radio Frequency Identification)

•TRP (Transportation Resource Planning)

•Logistics Outsourcing

•EDI (Electronic Data Interchange)

•WIDE (World wide Integrated Distribution Enterprise.)

•ROBOTIC Distribution Centre.

•Integration of ICT with innovative manufacturing process CAD, CAM

•POSTPONEMENT

IBM- IT based Organization BENETTON- Fashion Based Branded Manufacturer and retailer

Product flowProduct flow

Customer relationship ManagementCustomer relationship Management

Customer Service ManagementCustomer Service Management

Demand Management Demand Management

Order fullfilmentOrder fullfilment

Manufacturing Flow ManagementManufacturing Flow Management

ProcurementProcurement

Product Development and commercializationProduct Development and commercialization

Returns

Information Flow

PurchasingLogistics

Marketing & Sales

ProductionR & D

Finance

Tier 2Supplier

Tier 1Supplie

rCustomer

Customer/End Customer

Supply Chain Business Processes